New pension tax reforms to boost savings among Kenyans, says Enwealth

Enwealth Financial Services has commended the recent tax reforms introduced under the Tax Laws (Amendment) Act 2024, highlighting their positive impact on retirement security and financial planning for Kenyans.

Speaking during a client breakfast briefing in Nairobi to mark its 14th anniversary, Enwealth underscored how these reforms will strengthen pension adequacy, encourage savings, and provide critical healthcare support for retirees.

The event, attended by key industry players such as the Retirement Benefits Authority (RBA), pension funds, policymakers, financial experts, and industry leaders, focused on the implications of the new tax provisions on Kenya’s pension landscape.

According to experts at Enwealth, the tax amendments signal a transformative shift in retirement planning, particularly through the increased tax-deductible pension contribution limit. The ceiling has been raised by 50%, from Ksh.240,000 to Ksh.360,000 annually (Ksh.30,000 per month), a long-overdue adjustment that accounts for inflation and the rising cost of living.

This change means Kenyans can now save more for retirement without significantly reducing their disposable income, while also benefiting from lower Pay As You Earn (PAYE) liabilities.

John Keah, Assistant Director of Market Conduct and Industry Development at RBA, emphasized that this reform aligns tax policy with economic realities, ensuring that pension savings retain their value over time.

“The increase in tax-deductible contributions encourages a stronger retirement savings culture and provides a solution to the long-standing issue of pension adequacy,” said Keah.

Another key highlight of the reform is the introduction of tax-deductible contributions to post-retirement medical funds. Previously, contributions to these funds were not tax-exempt, making it harder for retirees to plan for healthcare costs. Under the new law, contributions of up to Ksh.15,000 per month are now tax-deductible, providing immediate tax relief while promoting long-term healthcare planning.

“The integration of healthcare savings into retirement benefits ensures that Kenyans can retire without the looming fear of overwhelming medical expenses,” said Enwealth’s CEO. “This reform will enable retirees to access quality medical services without financial strain, ultimately improving their quality of life.”

The Tax Laws (Amendment) Act 2024 also introduces a full tax exemption on pension benefits under specific conditions. Individuals who reach the official retirement age, withdraw due to ill health, or have been members of a retirement scheme for at least 20 years will no longer have their pension benefits taxed. This measure incentivizes long-term savings, discourages premature withdrawals, and provides a financial safety net for retirees facing health challenges.

To enhance efficiency in the retirement benefits sector, the Act has also simplified the registration process for retirement funds. Previously, schemes had to register with both the Kenya Revenue Authority (KRA) and the RBA to qualify for tax exemptions. With the new reform, registration solely under the RBA is now sufficient, eliminating bureaucratic hurdles and streamlining compliance.

“By reducing bureaucratic delays and enhancing regulatory oversight, these reforms reinforce accountability in the pension sector while making it easier for schemes to operate within a clear and transparent framework,” noted Enwealth’s experts.

As Enwealth Financial Services celebrates 14 years of empowering Kenyans to achieve financial security, the firm remains committed to guiding individuals and organizations on maximizing the benefits of these tax reforms to secure a financially stable retirement future.